Transcript High Tech Strategy II

Marketing Strategy in High-Tech
Markets II
The Big Group Smack Down!
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Define “High-Tech” and why are hi tech markets particularly
dynamic?
What do you consider the most important barriers to adoption
of the Wearable Computer?
Give an example of what you would consider a radical
innovation (tech or no tech) and develop a short definition.
Contingent on the type of innovation, the role of marketing
differs. How?
What would you call these and what do they have in common?
“Unit-one costs of HT products are often high, payback cycles
of a new HT products shorter and shorter.”
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Why is this so?
As a marketing consultant, what do you recommend a company do that
has a breakthrough product on its hand ready to launch?
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Why are High-Tech markets particularly
dynamic?
 No
established rules of the game
 Significant size economies
 low entry barriers.
Back
Barriers of Adoption
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Perceived value
Institutional support
Observability
Compatibility
Ease of use
Reliability
Back
Continuum of Innovations
Incremental
•Extension of existing
product or process
•Product characteristics
well-defined
•Competitive advantage
on low cost production
•Often developed in
response to specific
market need
•"Demand-side" market
Radical
•New technology creates new
market
•R&D invention in the lab
•Superior functional performance
over "old" technology
•Specific market opportunity or
need of only secondary concern
•"Supply-side" market
Back
Contingency Theory
Marketing Strategy
New Product Success
Type of Innovation
-Breakthrough
-Incremental
Type of marketing strategy is contingent
upon the nature of the innovation.
Examples of Implications of
Contingency Theory:
Breakthrough
R&D/Marketing
Interaction
Type of Marketing
Research
Role of Advertising
Pricing
Incremental
“technology push” “customer pull”
Lead users;
developers
Surveys; focus
groups
Primary demand;
Selective demand;
customer education build image
May be premium
More competitive
Back
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Muskets/then machine guns
Steam ships
Automobiles
PCs
Digital photography
What is a disruptive technology?
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Disruptive technologies typically have worse performance, at
least in the near term.
But: They have features that a few fringe and generally new
customers value and which represent a key source of competitive
value in the future.
Products based on them are typically cheaper, simpler, smaller
and frequently more convenient to use - often representing a
new product architecture, design, and even market (category).
They often bring a new and different value proposition.
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See Christensen: “The Innovator's Dilemma”
Back
Characteristics Common to
High-Tech Markets: Supply Side
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“Unit-one” costs: when the cost of producing the
first unit is very high relative to the costs of
reproduction
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Ex: development vs. reproduction of software
Demand-side increasing returns: When the value of
the product increases as more people adopt it
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Also called network externalities and bandwagon effects
Ex: telephone, fax, MS Word
Implications: may give away products for free (IM)
Characteristics Common to
High-Tech Markets: Supply Side
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Tradeability problems arise because it is difficult to value
the know-how which forms the basis of the underlying
technology
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Ex: How much to charge for licensing the rights to a waste-eating
microbe?
Knowledge spillover: Another type of externality that
arises from the fact that technological developments in one
domain spur new developments and innovations in other areas.
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Ex: Human Genome Project
Common, Underlying Characteristics of
High-Tech Markets: Demand Side
Perspective
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Market Uncertainty
Technological
Uncertainty
Competitive Volatility
Market
Uncertainty
Technological
Uncertainty
Marketing of
High-Technology
Products &
Innovations
Competitive
Volatility
Market Uncertainty:
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FUD factor
Customer needs
Anxiety over the lack of standards and dominant design
(Laserdisc, DVD, DivX)
Pace of adoption
Inability to forecast market size
Technology Uncertainty:
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Will it function as promised?
Timetable for new product development?
Who will fix customer problems?
What are unanticipated/unintended consequences?
(When) Will our technology be obsolete?
Competitive Uncertainty:
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Who will be future competitors?
What will be “the rules of the game” (i.e., competitive
strategies and tactics)?
What will “product form” competition be like?
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competition between product classes vs. between different
brands of the same product
Implication: Creative destruction?
Effects of Uncertainty?
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Adoption rate!
There are five variables that have been cited as responsible for
speed of technology adoption:
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Relative Advantage: the degree to which an innovation is perceived as better
than the idea it supersedes
Compatibility: the degree to which an innovation is perceived as consistent
with existing values, technologies, past experiences, and needs of
potential users
Complexity: the degree to which an innovation is perceived as relatively
difficult to use and understand
Trialability: the degree to which an innovation may be experimented with
on a limited basis
Observability: the degree to which the results of an innovation are visible to others
(Wow-factor).
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Rogers, “Diffusion of Innovation.”
Diffusion Rates
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The printing press (~1440):
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The automobile (1885):
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85 years (full saturation in the 1960s)
The fax machine (1843):
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75 years (market saturation in US around 1960)
The telephone (1876):
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400 years (1833, NY Sun).
140 years (late 1980s)
The Internet (1968)
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35 years
Value: Perceived Need-Perceived Price
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Variables essential to the successful uptake of
technology:
Providing an infrastructure
 Providing a function
 Providing the right price point
 Providing a compelling need to buy (make it a necessity).
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Telegraph! Faster than
Phone…Why?
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Morse presented prototype of the electric
telegraph to the US Congress in 1838
by 1873 Western Union had carried more than
twelve million messages
creation of the infrastructure which supported it.
 cheap and predictable rates.
 a shared language (global communication).
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What is a disruptive technology?
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



Muskets/then machine guns
Steam ships
Automobiles
PCs
Digital photography
What is a disruptive technology?




Disruptive technologies typically have worse performance, at
least in the near term.
But: They have features that a few fringe and generally new
customers value and which represent a key source of competitive
value in the future.
Products based on them are typically cheaper, simpler, smaller
and frequently more convenient to use - often representing a
new product architecture, design, and even market (category).
They often bring a new and different value proposition.

See Christensen: “The Innovator's Dilemma”
Continuum of Innovations
Incremental
•Extension of existing
product or process
•Product characteristics
well-defined
•Competitive advantage
on low cost production
•Often developed in
response to specific
market need
•"Demand-side" market
Radical
•New technology creates new
market
•R&D invention in the lab
•Superior functional performance
over "old" technology
•Specific market opportunity or
need of only secondary concern
•"Supply-side" market
Supplier vs. Customer Perceptions of
Nature of Innovation
Mismatch:
Delusion
Breakthrough
Incremental
Mismatch:
Shadow
Contingency Theory
Marketing Strategy
New Product Success
Type of Innovation
-Breakthrough
-Incremental
Type of marketing strategy is contingent
upon the nature of the innovation.
Examples of Implications of
Contingency Theory:
Breakthrough
R&D/Marketing
Interaction
Type of Marketing
Research
Role of Advertising
Pricing
Incremental
“technology push” “customer pull”
Lead users;
developers
Surveys; focus
groups
Primary demand;
Selective demand;
customer education build image
May be premium
More competitive
Marketing Strategy in High-Tech
Markets II
The Big Group Smack Down!






Define “High-Tech”.
What do you consider the most important barriers to adoption
of the Wearable Computer?
Give an example of what you would consider a radical
innovation and develop a short definition.
Contingent on the type of innovation, the role of marketing
differs. How?
Give an example of what you would consider a disruptive
technology and develop a short definition.
“Unit-one costs of HT products are often high, payback cycles
of a new HT products shorter and shorter.”


Why is this so?
As a marketing consultant, what do you recommend a company do that
has a breakthrough product on its hand ready to launch?

Why are High-Tech markets particularly
dynamic?
 No
established rules of the game
 Significant size economies
 low entry barriers.
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Continuous shortening of product life
cycles, which if true leads to a serious
dilemma:
=> High first part costs in innovation phase
is associated with shorter pay-back cycles!
Concentrated vs. Differentiated
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Pros and Cons?
Strategic Implications?
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(Segmentation, timing, participation)
STP
High innovation costs plus shortening PLC
means strategically:
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2)
Enter as many market segments as possible at the
same time to shorten pay-back time.
Develop a broad geographical strategy as low
entry barriers allow competitors to exploit
uncovered territory.
STP
Three Entry Options:
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Pioneers
Early Followers
Late followers
What are some pros and cons of each?
STP
Strategic Considerations:
1)
2)
3)
Differentiation versus Standardization?
Price-Quantity (cost utility) versus
preference oriented (buyer utility)?
Customer-orientation versus competitororientation?
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